Cannabis growers could face taxes on destroyed crops

Local governments around the state are adopting taxes that require cannabis growers to pay fees even if they lose their crop in fires or other natural disasters, which some say is an unfair burden on an industry that is trying to come out of the shadows.

Nevada City’s proposed medical cannabis tax structure, which will need voter approval before it takes effect, taxes cultivators based on the size of their grows. The city proposes charging $4 annually per square foot of canopy space in grow facilities that use artificial lighting, $3 per square foot in facilities that use a combination of natural and artificial lighting, and $1 per square foot for all natural lighting.

On top of local taxes, the state charges cultivators $9.25 per ounce of cannabis flowers that enter the commercial market and $2.75 per ounce of leaves.

Jonathan Collier, a member of the Nevada County Cannabis Alliance’s executive committee, said Nevada City’s tax structure is “not bad compared to other places.”

“But the whole model is flawed,” he said.

Collier said Nevada City’s proposed fees are very reasonable, but the city followed suit with other municipalities around the state in adopting a grow tax based on canopy size. He said it’s become a popular model because it’s simple and straightforward for local governments, but is unfair to growers in situations where unforeseen events ruin their crops.

Recommended Stories For You

“How fair is it to tax something you’re not even being compensated for?” he said.

Collier advocated for Nevada City to tax cultivators based on gross sales receipts when the city released its medical cannabis tax draft ordinance, but city council members said there wasn’t enough time to rewrite the regulations and still get them on the ballot for voter approval.

It wasn’t a battle worth fighting, Collier said, because it’s unlikely many cultivation businesses will set up shop inside the 2.2 miles of Nevada City’s jurisdiction.

The Cannabis Alliance is more concerned that Nevada City’s tax on canopy size could set a precedent for other nearby jurisdictions, who aren’t as far along in the process of adopting regulations for cannabis businesses, including Nevada County.

“This will be a big, big issue for us with the county,” Collier said, where he estimates hundreds — if not thousands — of growers will apply for business licenses when legalization takes effect next year.

A fair and reasonable tax structure is critical as the industry moves into legalization, Collier said. If cannabis businesses are unable to survive paying high fees to local governments and the state, they are more likely to continue operating in the shadows.